Your Money or Your Life

Benny Milligan saved a friend's life and went to jail for it. Milligan, a technician who worked for the Martin Marietta Corp. in New Orleans, was hiking with friends in central Tennessee three summers ago when his buddy James McElveen plunged 30 feet off a cliff. Milligan rushed his unconscious friend to a local hospital, but he worried that the critically injured man might be sent to another hospital because he had no health insurance. Milligan believed his Martin Marietta insurance coverage might save McElveen's life. When an admitting clerk asked for the friend's name, Milligan gave his own name and insurance account number. McElveen survived, but the ruse was discovered.

Last May a federal court found both men guilty of defrauding the insurer of $41,000 in medical bills. Milligan was sentenced to nine months in prison, and McElveen got seven months for not confessing his crime when he regained consciousness.

It cost the federal government more than $300,000 to prosecute the two men, plus about $4000 more each month to keep them locked up. Ironically, once in jail, McElveen got the right to health coverage he lacked when he fell off the cliff.

Gordon Bonnyman, an expert witness in the case, points up the unfairness of the episode. "They committed a crime that you can commit only in the United States," says Bonnyman, "because every other industrialized country provides health insurance for all its citizens."

America's unfortunate distinction is finally a major political issue. Indeed, President Clinton placed health care reform at the center of his domestic agenda, and the debate, ferocious for the past several months, has really just begun. It may be years before the issue is settled. [See An Enlightened Proposal, page 69, and Go Ahead, Make My Deductible, page 70.] For now, at least, the spotlight is on insurance, which is not surprising to Benny Milligan, James McElveen and millions of other Americans.

Statistics show that patients without insurance are as much as three times more likely to die in American hospitals than those who have insurance. Uninsured patients admitted with circulatory problems or chest pain, for instance, are 44 percent less likely to receive angiography than patients with insurance. A 1987 survey showed that every year nearly 1 million Americans who need emergency medical care do not receive it because they do not have insurance.

But even having a good health insurance policy is no guarantee of coverage if you become seriously ill. John McGann, an employee of H&H Music Co. in Houston, was protected by a company policy with a maximum benefit of $1 million. In 1988 McGann submitted his first claim for an AIDS-related illness. In order to keep its plan fiscally viable, H&H quickly rewrote its coverage. McGann's new policy paid a maximum of $5000 for AIDS-related illnesses.

McGann sued his employer for the revoked benefits and lost, both in federal court and on appeal. According to the courts, his employer had acted legally, and questions of fairness were irrelevant. To escape higher premiums from the AIDS claim, H&H had "self-insured." Instead of paying premiums to an insurance company, as it had before McGann became ill, H&H assumed the risk of its employees and financed health costs directly. Because self-insurance plans are regulated only by a 1974 federal pension law, they are immune to state insurance regulations. Once McGann had spent himself into poverty, Medicaid began to pay his bills. He died in 1991.

Employees are often unaware that their employers have self-insured their workers, which leaves them, like McGann, vulnerable. Typically, the same large insurance provider is hired to administer the self-insurance plan with the same obscure language. More than 60 percent of working Americans are covered by their employers' self-insurance plans. No person or institution is immune to the vagaries of the insurance industry--not even the Republican National Committee. When RNC chairman Lee Atwater was stricken with a brain tumor in 1990, the organization's insurers were reported to have threatened to triple the committee's rates unless it dropped Atwater's coverage. A year later the committee switched insurers.

Individual policies are also risky. Michael Jones, a former loan officer, purchased a major-medical catastrophic health policy in 1982 from Aetna, one of the nation's largest health insurance providers. Jones felt secure with the policy, which pledged to pay 100 percent of all health care costs after $2500, with no limit.

A few years later, Jones contracted a rare neurological disease. He collected Social Security disability, which made him eligible for Medicare, but he chose to continue to pay Aetna's escalating insurance premiums for its broader benefits. Before long, Aetna refused to cover all his large medical bills, insisting that because his disability made him eligible for Medicare, Jones would have to rely on the government (or himself) to cover a portion of the bills. According to Aetna, Medicare's involvement would get Aetna off the hook, regardless of what Jones had paid the private plan. Jones' benefits are now restricted to Medicare's levels and are paid by the American taxpayer. Jones' story demonstrates how the health insurance industry manages to have it both ways: The companies privatize their gains and socialize their losses.

Federally funded programs are the only insurance an employee can ultimately count on. This includes Medicaid, which provides basic coverage to 32 million poor Americans. Government already assumes 42 percent of the nation's health care costs, with local, state and federal governments picking up the tab. Private insurers, including Blue Cross, pay only 33 percent. Out-of-pocket payments by individuals account for most of the rest.

The insurance industry complains it is merely another victim of skyrocketing health care costs. Although many parts of the insurance industry suffered, Aetna's health insurance profits increased more than 150 percent between 1987 and 1991. Cigna, another top health insurer, did even better, with profits increasing 400 percent in the same period.

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Rising costs have priced health insurance out of the range of many employers. With benefits averaging $4000 per worker, companies are cutting coverage, cutting full-time jobs and hiring more part-timers. Medicaid's rolls swelled by a record 3.3 million people last year. Meanwhile, 37 million of us are uninsured--a number that grows by 100,000 every month. And almost 50 million more are underinsured, holding policies with gaping holes in coverage.

It's no surprise that some 50 percent of all personal bankruptcies are now filed because of the inability to pay hospital bills. The U.S. can provide the most advanced medical treatment a Saudi Arabian billionaire can buy, but every year about 300,000 Americans are refused care at hospital emergency rooms because they are uninsured or have inadequate coverage.

Even those lucky enough to receive top-notch employer-sponsored insurance policies are indirectly paying for increasing health care costs through higher taxes and a bigger budget deficit. Last year federal Medicare and Medicaid oulays grew by 25 percent, to nearly $200 billion.

Rising health care costs were the chief reason most American workers' wages remained frozen through the Eighties, and they were the cause of three quarters of all major labor strikes between 1988 and 1991. Ford Motor Co. spends $1300 in health insurance benefits for every car it produces in the U.S. That's more than double the health benefits cost for a car produced in a Japanese factory.

America's health care system is our largest industry. Its revenues will reach $940 billion this year, which is double, per capita, what Japan or Germany spends on health care. Yet for all this money, the United States ranks 21st among the world's 24 most industrialized nations in infant mortality--worse than Spain and Singapore. In terms of life expectancy, America ranks 16th, behind Canada, Japan and most of Europe.

"We are the only country in the world that lets the private health care industry determine health care policy," says Cathy Hurwit, legislative director for Citizen Action, a nonprofit consumer activist group in Washington, D.C. Consumer Reports noted in a special report that the American health care system "does not just allow prices to rise--it practically demands that they do." Why? Because America, for all practical purposes, pays doctors, hospitals and drug companies whatever they want.

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Frank Simpson (not his real name) is a 36-year-old nurse at a midsize community hospital in the Northeast. He and his colleagues who work in the cardiac catheterization department have a term for the patients who are forced to have unnecessary tests: profitably normal. Often a doctor will order Simpson to assist in a $5000 catheterization to study a condition, rather than prescribe any number of inexpensive, uncomplicated stress tests. Simpson and his colleagues have their own interpretation for this phenomenon: "We say the doctor needs to make a car payment. A lot of their decisions are suspect."

Nothing is more suspect than doctors who prescribe expensive surgical procedures for dying patients. Yet the practice is common. One in every seven American health care dollars is spent in the final six months of a patient's life.

Simpson remembers a surgeon at his hospital who ordered a gallstone operation for a comatose patient with terminal cancer who had only six weeks to live. The doctor on duty refused to participate in the operation. "He said it was a crime to perform the surgery and that we should let the poor woman die," Simpson recalls. "So the doctor operated himself and forced a surgical resident who couldn't refuse to assist him."

Cardiovascular surgeons are rewarded with incomes averaging more than $500,000 a year--five times as much as general practitioners earn. Heart disease generates $75 billion a year in business for hospitals and nursing homes. A cardiac catheterization returns a 70 percent profit for most hospitals, compared with only 4 percent for general operations. Bypass surgery, at $30,000 a procedure, is the next largest profit generator, netting a 40 percent margin--ten times the average.

With such money to be made, it's no wonder that the number of catheterization and other heart procedures performed in America nearly tripled between 1980 and 1988. We now have twice as many bypass operations as Canada, and five times as many as France. Still, Americans are 20 percent more likely to die of heart disease than Canadians.

Are all these expensive procedures necessary? In a compelling case study by Brigham and Women's Hospital in Boston, researchers persuaded 60 out of 88 patients whose specialist doctors had recommended bypass surgery not to have the operation. During a two-year follow-up period, there was no difference in the number of heart attacks among those who had the surgery and those who did not.

Sometimes unnecessary surgery results in fatal consequences. In 1985--in the spirit of Reagan-era deregulation--the state of Arizona withdrew its authority to limit the introduction of open-heart surgery programs. In response, seven Phoenix hospitals quickly opened such departments, joining four established hospitals with existing programs. The principle was that the resulting competition would increase quality and decrease prices. Instead, the average cost of heart surgery rose 50 percent in one year, while the local death rate from the surgeries grew 35 percent.

Surgeons aren't the only players cashing in. The head of Sloan-Kettering, the famous "nonprofit" cancer hospital in New York, makes more than $1 million a year in total compensation. The president of New York Hospital earned nearly $900,000 in 1990--as well as a generous apartment allowance. In 1990 the chief executive officer of Maryland Blue Cross and Blue Shield, which was nearly insolvent, netted $600,000. The company was also charged $75,000 for a skybox at Baltimore Orioles games, as well as for tickets to the Barcelona Olympics.

Pharmaceutical companies also add unnecessary billions to the nation's health care bill. Since 1980, drug prices have risen at nearly six times the rate of producer prices for other goods. The most profitable industry in America justifies its outrageous prices with the claim that billions are needed to research new drugs. Yet more money is spent each year promoting the sale of drugs than on research and development combined. Meanwhile, the government's cost for a standard set of child vaccines rose from $7 in 1982 to $129 in 1992. And American-manufactured drugs are 50 percent cheaper in Europe than they are in the U.S.

In 1991 American hospital profits increased 23 percent to more than $10 billion. That figure outranks the combined profits of every publicly traded movie studio, record label and broadcasting, cable, advertising and publishing company in the nation.

Because the insurers and government agencies generally pay for care, hospitals do not compete to keep costs down. One national study found that costs per admission for hospitals with nine or more competitors within a 15-mile radius were 26 percent higher than those without such competition. Instead, hospitals use newer, more expensive technology to woo patients. The patients, in turn, don't check prices because someone else pays their bills.

As a result, even if common sense suggests that a community requires only a single cardiac-care center or magnetic-resonance-imaging machine, every hospital hungry for high-priced business will attempt to offer the services. It is as if a technological arms race is thriving among hospitals. Expensive diagnostic-imaging equipment, not surprisingly, tends to create its own demand: A University of Arizona study of 65,000 patients found that doctors who had such equipment in their offices ordered four times as many imaging exams as doctors who referred patients elsewhere for the tests. In spite of last year's recession, hospitals increased spending on new equipment by 15 percent. Small wonder that profits in the $23 billion-a-year medical-equipment industry rose an estimated 25 percent in 1992.

When patients are in the hospital, every clipboard-toting specialist who glances at their charts earns $100 or more per bedside pilgrimage. This is one reason the average physician's real income rose 44 percent between 1983 and 1991--more than any other profession in the country. A supervising doctor has the power to assign as many "consulting" urologists, neurologists, cardiologists or other specialists as he or she likes. "It's a one-hand-washes-the-other sort of thing," nurse Frank Simpson says. "Five specialists are called in to consult on something that I can easily identify and that any internist can certainly understand."

Sandra Green (not her real name), an employee of a hospital in Philadelphia, says her institution works hard to cash in on its new physical-rehabilitation ward. Insurers and Medicare will cover only a designated number of hospital days for any illness. But because many policies will also pay for related physical therapy, Green says that orthopedists scour the wards looking for patients whose insurance will pay for physical rehabilitation. "In seventy-five percent of the cases," says Green, "the ward is getting patients who could otherwise go home."

In Florida, where more than 40 percent of doctors own interests in laboratories or treatment facilities, a study found that the doctors' labs performed twice as many tests per patient as independent labs. The enormous profits in lab testing were revealed last December when California's National Health Laboratories Inc. agreed to refund to the federal government the money it had pocketed through a fraudulent claims scheme. The amount of the settlement was $111 million.

Guidelines for the Debate about Reform

Under the direction of Hillary Rodham Clinton, the health care task force has worked on a plan for reform that has sparked intense debate. The Clinton administration's plan for change is based on managed competition, a system that has never been tested on a broad scale. The competition in question would take place among the same giant insurance companies that now dominate the industry. Allowing insurance companies greater economic management of each individual's health care will, according to the theory, reduce health care costs.

Employers and individuals would no longer buy coverage directly from insurance companies. They would instead be organized into large health plan purchasing cooperatives (called health alliances), each representing more than a million consumers in a particular region. Meanwhile, the providers of health care--labs, clinics, hospitals and doctors--would also be organized into partnerships. The health alliances would then negotiate with the provider partnerships. Each partnership would compete for the alliances' business by offering a variety of prepriced care packages offered through insurance companies.

A national health board would set minimum basic standards for all insurance plans. For example, it would become illegal to exclude people with preexisting conditions or to cancel policies for those who develop expensive illnesses.

The provider partnerships would offer several health insurance plans on a flat-fee basis. The lowest-cost plans would provide only basic medical services, such as hospitalization and visits to health clinics. (Through a variety of taxes, those currently uninsured would be given federal vouchers to purchase such basic minimum plans.) Higher-priced plans would offer more benefits, such as dental care, mental health care, private hospital rooms and higher-paid doctors.

Federal malpractice reform legislation will probably be attached to any health care bill. This is likely to cut unnecessary tests and procedures ordered by doctors who are afraid of being sued.

The provider partnerships would, in theory, take the lead role in keeping down costs in order to compete with one another to offer the lowest-priced plans. They would do this by managing each patient's care, much in the manner of today's health maintenance organizations. By putting doctors on salary (not a popular notion among higher-paid specialists) and by closely examining all expensive care, the partnerships would save money by reducing what they deemed to be unnecessary tests and operations.

These partnerships would essentially be run by insurance companies that could dictate which operations and tests a patient would receive. Patients would probably have to pay extra if they chose to visit a doctor or hospital that did not belong to their provider partnership.

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The Clinton plan is under attack from two opposing schools of thought. The first advocates a system of national health insurance. Supporters of a Canadian-style "single payer" system, including Congressman Henry Waxman and Senator Paul Wellstone, believe that the government should eliminate insurance companies altogether. They note that private insurance has been around for a hundred years, and where has it gotten us? If it isn't competitive now, it will never be.

Single-payer advocates want the government to provide national health insurance to all citizens. Like Social Security, the system would be financed through a mandatory payroll tax paid by employers and employees. The government would not run hospitals and doctors' offices, which would amount to socialized medicine. Instead, citizens would be free to choose from a marketplace of doctors and hospitals that would be paid by the single-payer health insurer--the federal government.

Backers of a single-payer plan are unhappy that Clinton's plan deliberately encourages various levels of health care, reserving access to higher-quality care for those who can pay more. They prefer national health insurance, which would provide the same quality of basic health care to all citizens. It would redistribute privilege from our current system--in which care is rationed on the basis of ability to pay--to one in which care is rationed on a patient's health needs. Perpetuation of our current multitiered system, these critics say, will inevitably result in private insurers' providing substandard service to the poor.

Single-payer advocates further believe that Americans would rather entrust their health insurance to the government than to private insurers. "[Clinton's plan] is the ultimate expression of corporate health care," warns Tim Takaro, an internist who practices at primary care clinics in Portland, Oregon. "The insurance company's interest is in making money--not in controlling health costs or providing the best care."

A member of Hillary Rodham Clinton's reform team disagrees. "Americans have more of a natural distrust of the government than Canadians do," she maintains, adding that the public is unlikely to tolerate the transfer of more than $500 billion in private-sector resources (the amount now spent on health care by private insurance and out-of-pocket payments) into a public-sector national health insurance program. "We just don't have that kind of faith," she says.

Clinton's plan may not be able to control costs. In the past decade, in which managed care has expanded to cover nearly half of all Americans, the nation experienced its largest increase in health care costs. Part of the reason for this is the enormous administrative expense of both managed care and private insurance bureaucracies. American hospitals are crammed with administrative nurses arguing on the phone with thousands of insurance company administrators, whose job it is to dispute many of the 4 billion health claims processed annually. Hundreds of thousands more health workers speak to these insurance administrators on behalf of doctors defending their bills.

This intense scrutiny of medical procedures comes from an attempt to restrain the excesses of for-profit medicine. But the cure has become as bad as the problem. The number of health care administrators in this country increased almost sixfold between 1970 and 1989, while the number of physicians and clinical personnel merely doubled.

Supporters of a single-payer system note that Clinton's plan will sustain such bureaucratic excesses and even create new administrative boondoggles among the large health alliances.

Some critics are fearful that a single-payer system would underfund hospitals and result in waiting periods for elective surgery. But national health insurance can be administratively efficient. A 300-bed hospital in Bellingham, Washington employs 42 billing clerks, while a same-size hospital a few miles north in Vancouver, British Columbia requires just one billing clerk. Even more compelling: Blue Cross/Blue Shield of Massachusetts employs more administrators for its 2.5 million policyholders than does the Canadian government, which provides health insurance for 26 million citizens.

From the opposite end of the spectrum, conservative critics such as Dr. Merrill Matthews, Jr.--health policy director at the National Center for Policy Analysis--believe that Clinton's plan will only make matters worse. Matthews suggests that any attempt to impose a mandated care package for all Americans would cost countless billions, which would be borne by younger, healthier consumers. If the government provided insurance to everyone who lacked it, says Matthews, there would be no incentive for small-business owners and the self-employed to purchase their own insurance. Instead, they would voluntarily become uninsured so as to be eligible for government handouts.

Conservatives believe that consumers allow themselves to be ripped off because third parties generally pay for health care. "Ultimately we're going to hold costs down by giving consumers control over their own money and allowing them to make the choices," says Matthews. His group endorses a medical savings account system that provides incentives each year to policyholders who spend less than a specified amount on health care. That result is achieved by patients' becoming shrewder consumers, staying healthier and simply seeing their doctors less often--an approach that discourages preventive checkups.

This "survival of the healthiest" approach stands little chance of appeasing the public's outcry for real reform. It operates on the premise that people who are well should not have to pool their insurance premiums with those who are old, sick or disabled. The economic fear of becoming sick is already driving the public demand for change--without additional free-market penalties. Studies show that as many as 75 percent of Americans are willing to pay higher taxes to incorporate the uninsured in a universal health care plan.

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The most important objective of public officials--in the White House and in Congress--should be to correct the current system. Yet all too often the debate in Washington smacks of tinkering, of working around the edges. The change that must be made should be as pervasive as the illogic and inequity that poison the current system. If the problem is ever to be solved, it must be discussed in its full political context.

The Clinton plan is an earnest attempt to improve the state of health care in America, but it doesn't go far enough. With $940 billion and thousands of jobs at stake, there may be no way it can do all it needs to in the timetable of the Clinton administration. As the debate roars on, more concessions will be made to appease the noisiest interests: lobbyists for insurance companies, doctors, hospitals, medical equipment firms, pharmaceutical manufacturers and other health industry groups. To the extent that he yields to these demands, the costs of Clinton's plan will mount.

So, in turn, might the profitability of those groups. In 1991 the five largest publicly traded managed-care companies saw annual profits rise 87 percent. The Clinton plan intends eventually to provide currently uninsured citizens with as much as $50 billion worth of new private insurance policies annually. The power to manage care may carry with it the power to dictate profits.

In the transition of health care reform, the public should have the most to gain from changing the status quo. Unfortunately, as better-represented interests strive to find new ways to cash in on health care, they sabotage reform. And they will succeed unless the nation--that is, each of us--refuses to let them.

"The U.S. can provide the most advanced medical treatment a Saudi Arabian billionaire can buy, but every year about 300,000 Americans are refused care at emergency rooms."

"More money is spent each year promoting the sale of drugs than on research and development combined."